The EU Council has authorised Italy to continue applying its VAT split-payment mechanism, directing payments from public authorities into a dedicated government account, following adoption of a Council Implementing Decision at the ECOFIN meeting on 10 July 2026.
Italy has received approval to continue applying its VAT split-payment system following the adoption, without discussion, of an EU Council Implementing Decision at the Economic and Financial Affairs (ECOFIN) Council meeting held on 10 July 2026.
The regulation authorises Italy to continue utilising a split payment mechanism for Value Added Tax (VAT), which directs payments from public authorities into a dedicated government bank account. By extending this derogation from standard EU tax directives until 30 June 2029, the Council aims to help Italy combat tax evasion and fraud.
The key details of this Council Implementing Decision are as follows:
Synergy of anti-fraud measures
The split-payment system acts as an essential (preventative) measure that complements Italy’s mandatory electronic invoicing. While e-invoicing allows authorities to detect potential fraud after the fact, the split-payment ensures the VAT is secured in a blocked account upfront. This prevents situations where authorities cross-check invoices and discover fraud only after the offending taxable person has become insolvent and the funds are unrecoverable.
Protecting suppliers in a “credit position”Â
The system inherently prevents suppliers from offsetting the VAT they paid on their inputs with the VAT they should have received on their supplies, leaving them in a constant credit position requiring a refund from the tax authorities. To reduce the resulting cash flow impact, Italy gives these refund claims priority in both processing and payment.
Targeted scope and evolution
The VAT split-payment system initially applied to public authorities before being expanded in 2017 to cover public-sector-controlled companies and certain listed companies. Its scope was narrowed from 1 July 2025 by excluding FTSE MIB-listed companies, leaving the measure focused on sectors considered to present a higher risk of VAT evasion.
A “means of last resort”
The Council emphasised that the VAT split-payment system is an exceptional measure that should be used only as a last resort. While Italy argued that an extension is needed to protect VAT collection, it is expected to strengthen standard anti-fraud measures so that future renewals are no longer required.
Mandatory reporting by 2027
To closely monitor the impact of this extension, Italy must submit a detailed report to the European Commission by 30 September 2027.
Uninterrupted application and legal certainty
Italy formally requested this extension on 9 October 2025. Because the previous authorisation was set to expire on 30 June 2026, the Council established that this new extension takes effect continuously from 1 July 2026.
Following the decision, the Italian Revenue Agency issued a release confirming that taxpayers may continue applying the split-payment system without interruption beyond 30 June 2026.
